ADOBE INC

Previous wording

For our second quarter of fiscal 2024, we experienced strong demand across our Digital Media and Digital Experience offerings, driven by our innovative product roadmap. As we execute on our long-term growth initiatives, with focus on delivering product innovation and driving adoption and usage of our AI-powered solutions, we have continued to experience growth in software-based subscription revenue across our portfolio of offerings.

Current wording

For our third quarter of fiscal 2024, we experienced strong demand across our Digital Media and Digital Experience offerings, driven by our innovative product roadmap. As we execute on our long-term growth initiatives, with focus on delivering product innovation and driving adoption and usage of our AI-powered solutions, we have continued to experience growth in software-based subscription revenue across our portfolio of offerings.

Previous wording

In our Digital Media segment, we are a market leader with Creative Cloud, our subscription-based offering which provides desktop tools, mobile applications (“apps”) and cloud-based services for designing, creating and publishing rich content and immersive 3D experiences. Creative Cloud includes Adobe Express, a web and mobile app designed to enable a broad spectrum of users, including novice content creators, communicators and creative professionals, to create, edit and customize content quickly and easily with content-first, task-based solutions. Creative Cloud also includes Adobe Firefly, a group of creative generative AI models designed to generate high quality images and text effects. Adobe Firefly-powered generative AI features are also available across Creative Cloud apps including Adobe Photoshop and Adobe Express. Creative Cloud delivers value with deep, cross-product integration, frequent product updates and feature enhancements, cloud-enabled services including storage and syncing of files across users’ devices, machine learning and artificial intelligence, access to marketplace, social and community-based features with our Adobe Stock and Behance services, app creation capabilities, tools which assist with enterprise deployments and team collaboration, and affordable pricing for cost-sensitive customers.

Current wording

In our Digital Media segment, we are a market leader with Creative Cloud, our subscription-based offering which provides desktop tools, mobile applications (“apps”) and cloud-based services for designing, creating and publishing rich content and immersive 3D experiences. Creative Cloud offers Adobe Acrobat Pro, our comprehensive PDF solution, integral to creative workflows and used by creators worldwide as part of our Creative Cloud All Apps subscription and on a standalone basis. In addition, Adobe Express is our web and mobile app designed to enable a broad spectrum of users, including novice content creators, communicators and creative professionals, to create, edit and customize content quickly and easily with content-first, task-based solutions. Creative Cloud also includes Adobe Firefly, a group of creative generative AI models designed to generate high quality images and text effects. Adobe Firefly-powered generative AI features are also available across Creative Cloud apps including Adobe Photoshop and Adobe Express. Creative Cloud delivers value with deep, cross-product integration, frequent product updates and feature enhancements, cloud-enabled services including storage and syncing of files across users’ devices, machine learning and artificial intelligence, access to marketplace, social and community-based features with our Adobe Stock and Behance services, app creation capabilities, tools which assist with enterprise deployments and team collaboration, and affordable pricing for cost-sensitive customers.

Previous wording

We offer Creative Cloud for individuals, students, teams and enterprises. We expect Creative Cloud will drive sustained long-term revenue growth through a continued expansion of our customer base by attracting new users with new features and products like Adobe Express and Adobe Firefly that make creative tools accessible to first-time creators and communicators, and delivering new features and technologies to existing customers with our latest releases such as share for review and generative AI capabilities. We have also built out a marketplace for Creative Cloud subscribers to enable the delivery and purchase of stock content in our Adobe Stock service. Overall, our strategy with Creative Cloud is designed to enable us to increase our revenue with existing users, continue to attract new customers, and grow our recurring and predictable revenue stream that is recognized ratably.

Current wording

We offer Creative Cloud for individuals, students, teams and enterprises. We expect Creative Cloud will drive sustained long-term revenue growth through a continued expansion of our customer base by attracting new users with new features and products like Adobe Express and Adobe Firefly that make creative tools accessible to first-time creators and communicators, and delivering new features and technologies to existing customers with our latest releases such as generative AI capabilities. We have also built out a marketplace for Creative Cloud subscribers to enable the delivery and purchase of stock content in our

Previous wording

We are also a market leader with our Document Cloud offerings built around our Adobe Acrobat family of products, with a set of integrated mobile apps and cloud-based document services which enable users to create, collaborate, review, approve, sign and track documents regardless of platform or application source type. Document Cloud, which enhances the way people manage critical documents at home, in the office and across devices, includes Adobe Acrobat, Adobe Acrobat Sign and Adobe Scan. Adobe Acrobat is offered both through subscription and perpetual licenses, and is also included in our Creative Cloud All Apps subscription offering. In April 2024, we introduced Acrobat AI Assistant, a new generative AI-powered product designed to deliver insights and enhance productivity through interactive document experiences, which is available as an add-on subscription to our Adobe Acrobat and Adobe Acrobat Reader products.

Current wording

We are also a market leader with our Document Cloud offerings built around our Adobe Acrobat family of products, with a set of integrated mobile apps and cloud-based document services which enable users to create, collaborate, review, approve, sign and track documents regardless of platform or application source type. Document Cloud, which enhances the way people manage critical documents at home, in the office and across devices, includes subscriptions to Adobe Acrobat Pro and Standard, Adobe Acrobat Sign and Adobe Scan. Certain Adobe Acrobat products are also offered as perpetual licenses. In April 2024, we introduced Acrobat AI Assistant, a generative AI-powered product designed to deliver insights and enhance productivity through interactive document experiences, which is available as an add-on subscription to our Adobe Acrobat Pro and Standard and Adobe Acrobat Reader products.

Previous wording

Creative ARR exiting the second quarter of fiscal 2024 was $13.11 billion, up from $12.49 billion at the end of fiscal 2023. Document Cloud ARR exiting the second quarter of fiscal 2024 was $3.15 billion, up from $2.84 billion at the end of fiscal 2023. Total Digital Media ARR grew to $16.25 billion at the end of the second quarter of fiscal 2024, up from $15.33 billion at the end of fiscal 2023.

Current wording

Creative ARR exiting the third quarter of fiscal 2024 was $13.45 billion, up from $12.49 billion at the end of fiscal 2023. Document Cloud ARR exiting the third quarter of fiscal 2024 was $3.31 billion, up from $2.84 billion at the end of fiscal 2023. Total Digital Media ARR grew to $16.76 billion at the end of the third quarter of fiscal 2024, up from $15.33 billion at the end of fiscal 2023.

Previous wording

Our success in driving growth in ARR has positively affected our revenue growth. Creative revenue in the second quarter of fiscal 2024 was $3.13 billion, up from $2.85 billion in the second quarter of fiscal 2023, representing 10% year-over-year growth. Document Cloud revenue in the second quarter of fiscal 2024 was $782 million, up from $659 million in the second quarter of fiscal 2023, representing 19% year-over-year growth. Total Digital Media segment revenue grew to $3.91 billion in the second quarter of fiscal 2024, up from $3.51 billion in the second quarter of fiscal 2023, representing 11% year-over-year growth driven by strong net new user growth.

Current wording

Our success in driving growth in ARR has positively affected our revenue growth. Creative revenue in the third quarter of fiscal 2024 was $3.19 billion, up from $2.91 billion in the third quarter of fiscal 2023, representing 10% year-over-year growth. Document Cloud revenue in the third quarter of fiscal 2024 was $807 million, up from $685 million in the third quarter of fiscal 2023, representing 18% year-over-year growth. Total Digital Media segment revenue grew to $4.00 billion in the third quarter of fiscal 2024, up from $3.59 billion in the third quarter of fiscal 2023, representing 11% year-over-year growth driven by strong net new user growth.

Previous wording

We are a market leader in the fast-growing category addressed by our Digital Experience segment. The Adobe Experience Cloud apps and services are designed to manage customer journeys, enable personalized experiences at scale and deliver intelligence for businesses of any size in any industry. Our differentiation and competitive advantage are strengthened by our ability to use the Adobe Experience Platform to integrate our comprehensive set of solutions.

Current wording

We are a market leader in the fast-growing category addressed by our Digital Experience segment. The Adobe Experience Cloud apps and services are designed to manage customer journeys, enable personalized experiences at scale and deliver intelligence for businesses of any size in any industry. Our differentiation and competitive advantage are strengthened by our ability to use the Adobe Experience Platform to integrate our comprehensive set of solutions and our ability to embed AI into our product portfolio, such as with our new Adobe Experience Platform AI Assistant, a generative AI-powered conversational interface designed to help customers automate workflows and generate new audiences and journeys.

Previous wording

Digital Experience revenue was $1.33 billion in the second quarter of fiscal 2024, up from $1.22 billion in the second quarter of fiscal 2023, representing 9% year-over-year growth. Driving this growth was the increase in subscription revenue, which grew to $1.20 billion in the second quarter of fiscal 2024 from $1.07 billion in the second quarter of fiscal 2023, representing 13% year-over-year growth.

Current wording

Digital Experience revenue was $1.35 billion in the third quarter of fiscal 2024, up from $1.23 billion in the third quarter of fiscal 2023, representing 10% year-over-year growth. Driving this growth was the increase in subscription revenue, which grew to $1.23 billion in the third quarter of fiscal 2024 from $1.10 billion in the third quarter of fiscal 2023, representing 12% year-over-year growth.

Previous wording

There have been no significant changes in our critical accounting policies and estimates during the six months ended May 31, 2024, as compared to the critical accounting policies and estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 1, 2023.

Current wording

There have been no significant changes in our critical accounting policies and estimates during the nine months ended August 30, 2024, as compared to the critical accounting policies and estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 1, 2023.

Previous wording

•Total Digital Media ARR of approximately $16.25 billion as of May 31, 2024 increased by $919 million, or 6%, from $15.33 billion as of December 1, 2023.

Current wording

•Total Digital Media ARR of approximately $16.76 billion as of August 30, 2024 increased by $1.42 billion, or 9%, from $15.33 billion as of December 1, 2023.

Previous wording

•Creative revenue during the three months ended May 31, 2024 of $3.13 billion increased by $274 million, or 10%, compared to the year-ago period. Document Cloud revenue during the three months ended May 31, 2024 of $782 million increased by $123 million, or 19%, compared to the year-ago period.

Current wording

•Creative revenue during the three months ended August 30, 2024 of $3.19 billion increased by $279 million, or 10%, compared to the year-ago period. Document Cloud revenue during the three months ended August 30, 2024 of $807 million increased by $122 million, or 18%, compared to the year-ago period.

Previous wording

•Digital Experience revenue of $1.33 billion during the three months ended May 31, 2024 increased by $105 million, or 9%, compared to the year-ago period.

Current wording

•Digital Experience revenue of $1.35 billion during the three months ended August 30, 2024 increased by $125 million, or 10%, compared to the year-ago period.

Previous wording

•Cost of revenue of $598 million during the three months ended May 31, 2024 increased by $26 million, or 5%, compared to the year-ago period.

Current wording

•Cost of revenue of $554 million during the three months ended August 30, 2024 decreased by $26 million, or 4%, compared to the year-ago period.

Previous wording

•Cash flows from operations of $3.11 billion during the six months ended May 31, 2024 decreased by $718 million, or 19%, compared to the year-ago period, primarily due to payment of the $1 billion Figma termination fee during the first quarter of fiscal 2024.

Current wording

•Cash flows from operations of $5.14 billion during the nine months ended August 30, 2024 decreased by $570 million, or 10%, compared to the year-ago period and were adversely impacted by the payment of the $1 billion Figma termination fee during the first quarter of fiscal 2024.

Previous wording

•Remaining performance obligations of $17.86 billion as of May 31, 2024 increased by $644 million, or 4%, from $17.22 billion as of December 1, 2023.

Current wording

•Remaining performance obligations of $18.14 billion as of August 30, 2024 increased by $924 million, or 5%, from $17.22 billion as of December 1, 2023.

Previous wording

We have the following reportable segments: Digital Media, Digital Experience, and Publishing and Advertising. Subscription revenue by reportable segment for the three and six months ended May 31, 2024 and June 2, 2023 is as follows:

Current wording

We have the following reportable segments: Digital Media, Digital Experience, and Publishing and Advertising. Subscription revenue by reportable segment for the three and nine months ended August 30, 2024 and September 1, 2023 is as follows:

Previous wording

Revenue by major offerings in our Digital Media reportable segment for the three and six months ended May 31, 2024 and June 2, 2023 were as follows:

Current wording

Revenue by major offerings in our Digital Media reportable segment for the three and nine months ended August 30, 2024 and September 1, 2023 were as follows:

Previous wording

Revenue from Digital Media increased $397 million and $818 million during the three and six months ended May 31, 2024 as compared to the three and six months ended June 2, 2023 driven by increases in revenue associated with our Creative and Document Cloud subscription offerings due to continued demand amid an increasingly digital environment, strong engagement across customer segments and migrating our customers to higher valued subscription offerings with increased revenue per subscription.

Current wording

Revenue from Digital Media increased $401 million and $1.22 billion during the three and nine months ended August 30, 2024 as compared to the three and nine months ended September 1, 2023 driven by increases in revenue associated with our Creative and Document Cloud subscription offerings due to continued demand amid an increasingly digital environment, strong engagement across customer segments and migrating our customers to higher valued subscription offerings with increased revenue per subscription.

Previous wording

Revenue from Digital Experience increased $105 million and $218 million during the three and six months ended May 31, 2024 as compared to the three and six months ended June 2, 2023 primarily due to net new additions across our subscription offerings.

Current wording

Revenue from Digital Experience increased $125 million and $343 million during the three and nine months ended August 30, 2024 as compared to the three and nine months ended September 1, 2023 driven by subscription revenue growth across our offerings.

Previous wording

Overall revenue during the three and six months ended May 31, 2024 increased in all geographic regions as compared to the three and six months ended June 2, 2023. Within each geographic region, the fluctuations in revenue by reportable segment were attributable to the factors noted in the segment information above.

Current wording

Overall revenue during the three and nine months ended August 30, 2024 increased in all geographic regions as compared to the three and nine months ended September 1, 2023. Within each geographic region, the fluctuations in revenue by reportable segment were attributable to the factors noted in the segment information above.

Previous wording

Included in the overall change in revenue for the three and six months ended May 31, 2024 as compared to the three and six months ended June 2, 2023 were impacts associated with foreign currency and our foreign currency hedging program. During the three and six months ended May 31, 2024 as compared to the year-ago periods, the U.S. Dollar primarily weakened against EMEA foreign currencies and strengthened against APAC foreign currencies, which resulted in a net decrease in revenue in U.S. Dollar equivalents of approximately $15 million and $16 million, respectively. For the three and six months ended May 31, 2024, we had net hedging losses from our cash flow hedging program of $5 million and $9 million, respectively.

Current wording

Included in the overall change in revenue for the three and nine months ended August 30, 2024 as compared to the three and nine months ended September 1, 2023 were impacts associated with foreign currency and our foreign currency hedging program. During the three and nine months ended August 30, 2024, the U.S. Dollar primarily strengthened against APAC foreign currencies and weakened against EMEA foreign currencies as compared to the year-ago periods, which resulted in a net decrease in revenue in U.S. Dollar equivalents of approximately $33 million and $49 million, respectively. For the three and nine months ended August 30, 2024, we had net hedging losses from our cash flow hedging program of $2 million and $11 million, respectively.

Previous wording

Cost of Revenue for the Three and Six Months Ended May 31, 2024 and June 2, 2023

Current wording

Cost of Revenue for the Three and Nine Months Ended August 30, 2024 and September 1, 2023

Previous wording

General and administrative expenses decreased during the three months ended May 31, 2024 as compared to the three months ended June 2, 2023 and increased during the six months ended May 31, 2024 as compared to the six months ended June 2, 2023 primarily due to the following:

Current wording

Cost of subscription revenue decreased during the three months ended August 30, 2024 as compared to the three months ended September 1, 2023 and increased during the nine months ended August 30, 2024 as compared to the nine months ended September 1, 2023 primarily due to the following:

Previous wording

Cost of services and other revenue increased during the three and six months ended May 31, 2024 as compared to the three and six months ended June 2, 2023 primarily due to increases in compensation costs.

Current wording

Cost of services and other revenue increased during the three and nine months ended August 30, 2024 as compared to the three and nine months ended September 1, 2023 primarily due to increases in compensation costs and professional fees.

Previous wording

Operating Expenses for the Three and Six Months Ended May 31, 2024 and June 2, 2023

Current wording

Operating Expenses for the Three and Nine Months Ended August 30, 2024 and September 1, 2023

Previous wording

Research and development expenses increased during the three and six months ended May 31, 2024 as compared to the three and six months ended June 2, 2023 due to the following:

Current wording

Research and development expenses increased during the three and nine months ended August 30, 2024 as compared to the three and nine months ended September 1, 2023 due to the following:

Previous wording

Sales and marketing expenses increased during the three and six months ended May 31, 2024 as compared to the three and six months ended June 2, 2023 primarily due to increases in compensation costs.

Current wording

Sales and marketing expenses increased during the three and nine months ended August 30, 2024 as compared to the three and nine months ended September 1, 2023 primarily due to increases in compensation costs.

Previous wording

During the six months ended May 31, 2024, we incurred a $1 billion termination fee which resulted from termination of the Figma transaction.

Current wording

During the nine months ended August 30, 2024, we incurred a $1 billion termination fee which resulted from termination of the Figma transaction.

Previous wording

Non-Operating Income (Expense), Net for the Three and Six Months Ended May 31, 2024 and June 2, 2023

Current wording

Non-Operating Income (Expense), Net for the Three and Nine Months Ended August 30, 2024 and September 1, 2023

Previous wording

Interest expense increased during the three and six months ended May 31, 2024 as compared to the three and six months ended June 2, 2023 due to the senior notes issued in April 2024. See Note 14 for further details regarding our debt.

Current wording

Interest expense increased during the three and nine months ended August 30, 2024 as compared to the three and nine months ended September 1, 2023 due to the senior notes issued in April 2024. See Note 14 for further details regarding our debt.

Previous wording

Other income (expense), net increased during the three and six months ended May 31, 2024 as compared to the three and six months ended June 2, 2023 primarily due to increases in interest income driven by higher average cash equivalent balances and average interest rates.

Current wording

Other income (expense), net increased during the three and nine months ended August 30, 2024 as compared to the three and nine months ended September 1, 2023 primarily due to increases in interest income driven by higher average cash equivalent balances and average interest rates.

Previous wording

Provision for Income Taxes for the Three and Six Months Ended May 31, 2024 and June 2, 2023

Current wording

Provision for Income Taxes for the Three and Nine Months Ended August 30, 2024 and September 1, 2023

Previous wording

Our effective tax rate decreased by approximately four percentage points for the three months ended May 31, 2024, as compared to the three months ended June 2, 2023, primarily due to an increase in the net tax benefit from effects of non-U.S. operations during the three months ended May 31, 2024. Our effective tax rate increased by approximately two percentage points for the six months ended May 31, 2024, as compared to the six months ended June 2, 2023, primarily due to the Figma acquisition termination fee incurred during the six months ended May 31, 2024 which was not deductible for financial statement purposes.

Current wording

Our effective tax rate decreased by approximately two percentage points and increased by approximately one percentage point for the three and nine months ended August 30, 2024, respectively, as compared to the three and nine months ended September 1, 2023. During the three and nine months ended August 30, 2024, there was an increase in the net tax benefits from effects of non-U.S. operations and stock-based compensation which decreased our effective tax rates. The increase in our effective tax rate during the nine months ended August 30, 2024 was primarily due to the Figma acquisition termination fee which was not deductible for financial statement purposes, partially offset by the previously noted items.

Previous wording

Our effective tax rate for the three months ended May 31, 2024 was lower than the U.S. federal statutory tax rate of 21% primarily due to the net tax benefits from effects of non-U.S. operations and the U.S. federal research tax credit, partially offset by state taxes. Our effective tax rate for the six months ended May 31, 2024 was higher than the U.S. federal statutory tax rate of 21% primarily due to the Figma acquisition termination fee which was not deductible for financial statement purposes and, to a lesser extent, from state taxes partially offset by the net tax benefits from effects of non-U.S. operations and the U.S. federal research tax credit.

Current wording

Our effective tax rate for the three months ended August 30, 2024 was lower than the U.S. federal statutory tax rate of 21% primarily due to the net tax benefits from effects of non-U.S. operations and the U.S. federal research tax credit, partially offset by state taxes. Our effective tax rate for the nine months ended August 30, 2024 was higher than the U.S. federal statutory tax rate of 21% primarily due to the Figma acquisition termination fee which was not deductible for financial statement purposes, partially offset by the previously noted items.

Previous wording

We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized based on evaluation of all available positive and negative evidence. On the basis of this evaluation, we continue to maintain a valuation allowance to reduce our deferred tax assets to the amount realizable. The total valuation allowance was $699 million as of May 31, 2024, primarily related to certain state credits and capital loss carryforwards.

Current wording

We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized based on evaluation of all available positive and negative evidence. On the basis of this evaluation, we continue to maintain a valuation allowance to reduce our deferred tax assets to the amount realizable. The total valuation allowance was $723 million as of August 30, 2024, primarily related to certain state credits and capital loss carryforwards.

Previous wording

The provision from the U.S. Tax Act which requires us to capitalize and amortize research and development costs became effective in fiscal 2023. If the rule is not modified, there will continue to be an adverse impact on our effective rates for income taxes paid, which is partially offset by a benefit to our effective tax rates from the increase in the foreign-derived intangible income deduction.

Current wording

The provision from the U.S. Tax Act which requires us to capitalize and amortize research and development costs became effective in fiscal 2023. This requirement continues to have an adverse impact on our effective rates for income taxes paid, which is partially offset by a benefit to our effective tax rates from the increase in the foreign-derived intangible income deduction.

Previous wording

The gross liabilities for unrecognized tax benefits excluding interest and penalties were $689 million and $352 million as of May 31, 2024 and June 2, 2023, respectively. If the total unrecognized tax benefits as of May 31, 2024 and June 2, 2023 were recognized, $519 million and $230 million would decrease the respective effective tax rates.

Current wording

The gross liabilities for unrecognized tax benefits excluding interest and penalties were $703 million and $436 million as of August 30, 2024 and September 1, 2023, respectively. If the total unrecognized tax benefits as of August 30, 2024 and September 1, 2023 were recognized, $539 million and $307 million would decrease the respective effective tax rates.

Previous wording

The timing of the resolution of income tax examinations is highly uncertain as are the amounts and timing of tax payments that are part of any audit settlement process. These events could cause large fluctuations in the balance sheet classification of our tax assets and liabilities. We believe that within the next 12 months, it is reasonably possible that either certain audits will conclude or statutes of limitations on certain income tax examination periods will expire, or both. Although the timing of resolution, settlement and closing of audits is not certain, it is reasonably possible that the underlying unrecognized tax benefits may decrease by up to $70 million over the next 12 months.

Current wording

The timing of the resolution of income tax examinations is highly uncertain as are the amounts and timing of tax payments that are part of any audit settlement process. These events could cause large fluctuations in the balance sheet classification of our tax assets and liabilities. We believe that within the next 12 months, it is reasonably possible that either certain audits will conclude or statutes of limitations on certain income tax examination periods will expire, or both. Although the timing of resolution, settlement and closing of audits is not certain, it is reasonably possible that the underlying unrecognized tax benefits may decrease by up to $50 million over the next 12 months.

Previous wording

Net cash provided by operating activities of $3.11 billion for the six months ended May 31, 2024 was primarily comprised of net income adjusted for the net effect of non-cash items. Payment of the $1 billion Figma termination fee during the six months ended May 31, 2024 had an adverse impact on net income and cash flows from operations. Working capital uses of cash included increases in prepaid expenses and other assets, offset by decreases in trade receivables driven by strong collections.

Current wording

Net cash provided by operating activities of $5.14 billion for the nine months ended August 30, 2024 was primarily comprised of net income adjusted for the net effect of non-cash items. Payment of the $1 billion Figma termination fee during the nine months ended August 30, 2024 had an adverse impact on net income and cash flows from operations. Working capital uses of cash included increases in prepaid expenses and other assets, offset by decreases in trade receivables driven by strong collections.

Previous wording

Net cash provided by investing activities of $177 million for the six months ended May 31, 2024 was primarily due to maturities and sales of short-term investments partially offset by ongoing capital expenditures and investments of certain deferred compensation.

Current wording

Net cash provided by investing activities of $130 million for the nine months ended August 30, 2024 was primarily due to maturities and sales of short-term investments partially offset by ongoing capital expenditures.